Why U.S. Silica Shares Fell

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of U.S. Silica Holdings (NYSE: SLCA) dropped as much as 15% today early this morning on a downbeat earnings report, though it recovered most of its losses to finish out the day down just 3.6%.

So what: The silica miner and processor said that adjusted earnings per share fell 5.3 % to $0.35 off analysts' targets by a penny, however revenue grew 19% to $122.3 million, slightly ahead of expectations. Growth in the oil and gas segment was strong, up 36%, due to demand from fracking, which uses the silica compound as an ingredient in the sand it shoots to fracture shale rock, but profits only barely increased from the oil and gas segment despite the sales jump. Revenue in its other segment, industry and special products, was essentially stagnant. Meanwhile, top-line guidance for the current quarter topped Wall Street projections.

Now what: The market's reaction seems a little strange here, as earnings were barely off expectations, and everything else was better than expected. U.S. Silica even initiated a $0.125 quarterly dividend, good enough for a 2.5% yield. Today's sell-off may be a consequence of a stock that's already been bid up significantly, more than doubling since last summer. I also have concerns about its inability to convert additional revenue into profits, but over the long term that should straighten out. For believers in fracking this looks like a solid bet.

For more information on U.S. Silica, add the stock to your Watchlist here.

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